Baby, we got a bubble!?

[Riverdale Rink Rat]

Perhaps. I am not a cheerleader for the R/E industry but I would be careful comparing to what was essentially the busiest year on record (2011). Compared to that, I would expect any year to come down.
Also, averages are very deceiving.

On one point I do agree. Generally the high end slows down and falls first in price. So this would pull down the average and that may in fact be what is happening. I think we need to wait until mid next year but if current trend continues...then yes...this is the beginning.

Mrs. RRR + I have been breaking our arms patting ourselves on the back, as we consider 13 July 2012 the official top (our closing date.) ;-)

 

[cdr108]

Mrs. RRR + I have been breaking our arms patting ourselves on the back, as we consider 13 July 2012 the official top (our closing date.) ;-)

but when was your sell date? you might have missed out on 2-3 months of continued price rises


all kidding aside, great move.

 

[interested]

I would understand this thinking for an investment property. For your personal home I am not sure it is the right thing to do, or at least not the right thing for a number of property owners. By the time one moves, rents, pays all the costs, and moves again we are talking about a lot of disruption to ones life for a financial decision. If the decision to move was already in play, it makes a lot of sense.
However, what is the cost total if one figures selling costs on home #1. Legals and all soft costs.
Rental amount paid (though it may be the same as running the house or more or less...depending).
Then moving costs to move from sale of house to rental...possibly from rental to rental...then back to presumed ownership when the market dropped its 25% let's say.
Then there is the LTT and the Toronto Land Transfer tax to buy and the inherent costs which occur when one moves and the inevitable money one pours into the "new place".
My point is that as a strategy one requires I believe probably 15% drop to be at the same point and one only makes money when the drop is more significant than that.

To CDR's point, congratulations, but most of us are not so good as to hit the exact top and the exact bottom so even if there is 25% variation, I would suggest most would only catch 20% of that if they were very adept and lucky.

So...is it worth the disruption I ask unless one was going to do it anyway for 5% assuming my 15% moving/soft cost expenses and 20% of price differential?

Once again, congrats to you and Mrs. RRR on your wonderful timing and your foresight. May I ask you about the "disruption factor" from your view or am I overblowing and overimagining the impact. (I have moved once in the past 25 years and the thought overwhelms me as well as if there are kids etc the additional disruptions to their lives).

Obviously if things do drop 25-30% as some have suggested, then perhaps it makes sense.

 

[CN Tower]

Has is officially begun?

TORONTO, December 5, 2012 -- Greater Toronto Area REALTORS® reported 5,793 sales in November 2012 – down by 16 per cent compared to November 2011.

“Transactions have been down on a year-over-year basis since June, after being up substantially in the last half of 2011 and the first half of 2012. Some buyers pulled forward their decision to purchase, which has impacted sales levels in the second half of 2012,†said Toronto Real Estate Board (TREB) President Ann Hannah.

“Stricter mortgage lending guidelines, including a reduced maximum amortization period and a purchase price ceiling of one-million dollars for government insured mortgages, have prompted some buyers to move to the sidelines. This situation has been exacerbated in the City of Toronto because the additional upfront Land Transfer Tax takes money away from buyers that otherwise could be used for a larger down payment,†continued Ms. Hannah.

The average selling price was up by 1.6 per cent annually to $485,328. The MLS® Home Price Index (MLS® HPI) Composite Benchmark was up by 4.6 per cent compared to last year.

“The moderate annual rate of price growth compared to previous months was largely due to a different mix in detached home sales this year compared to last, particularly in the City of Toronto. The share of detached homes that sold for over one-million dollars was down substantially, which influenced the overall average price,†said Jason Mercer, TREB’s Senior Manager of Market Analysis.

“The MLS® HPI detached benchmark price, which tracks the price for a home with the same attributes over time, was up by almost six per cent in Toronto, suggesting that market conditions for low-rise homes remain quite tight despite a changing mix of sales,†added Mercer.

City of Toronto Sales are down 22% y/y. Prices are down 0.54% y/y.
Detaches houses in the City of Toronto: Sales down 18% y/y. Prices down 3.8% y/y.
Condos in the City of Toronto: Sales down 25% y/y. Prcies down 3.9% y/y.

http://www.torontorealestateboard.c...ket_updates/news2012/nr_market_watch_1112.htm

I checked out some additional stats:

Average selling price of a condo in C2 in November 2011 $978,660. Average selling price in November 2012 $711,085. Down 27% y/y

C10 (yonge& egl area) Condos November 2011 $476,355. November 2012 $414,355. Down 13% y.y

C1 Condos November 2011 $415,901. November 2012 $432,578. Up 4% y/y

This data belies the guava data:

Toronto Median 2012 $410,000
Toronto Median 2011 $400,000

Averages are similarly up fractionally as well.

 

[daveto]

Brutal month for GTA real estate. If you adjust recent year sales for population/housing unit growth, then Nov 2012 sales were nearly 20% below the 8 year average.
http://guava.ca/indicators.html

 

[CN Tower]

Mrs. RRR + I have been breaking our arms patting ourselves on the back, as we consider 13 July 2012 the official top (our closing date.) ;-)

I echo Interested cautious approval of thrusting a nomadic lifestyle on one's family in a misguided effort to time an investment theory. Particularly in a very desirable & stable neighborhood like Riverdale. The ultimate move would be to sell & lease back your house if that option was feasible. In my opinion there are better ways to hedge the value of your principal residence if you have such powerful confidence in an impending market correction.

The foregoing thoughts are of course entirely moot if uprooting self & family are not an issue or even better if a move was previously contemplated for external considerations.

 

[Eug]

I agree totally. Buying and selling a house is not the same thing as buying and selling a stock. It's very rare to be able to time the market correctly, and even if you do, your timing still may not be helpful to your finances given all the costs involved and given the tendency for real estate to rise with time. And when you talk about a principal residence, it's all the more complicated.

For example, a few people jumped out of the market in 2007 or so. Good for them, as the mini-pullback happened in 2008-2009. But then it quickly reversed itself and prices skyrocketed.

Not only were they out of their house and paying rent, they also missed the opportunity to buy back in, and now the market has left them in the dust. And what do they have to show for it? Not much, cuz they spent so much money moving and on commissions etc.

---

BTW. This is a bit different but we have some friends who are in the construction business. The husband's family builds them a home, and then they sell it to capture the profit, and then they move again into a newly constructed home. Wash, rinse, repeat, every 3-5 years. He likes it because he makes money tax free (principal home), but his wife absolutely hates it. Personally, I wouldn't bother. The headache is just not worth it, and that's even with virtually guaranteed income.

For a primary home of which I am not the builder, it's even more just not worth it IMO, since there are no guarantees.

 

[interested]

I agree with your example.

Moving every 3-5 years is OK but this was the non monetary price I was referring to, the wife's "unhappiness".

From a tax point of view, there was a case of someone who moved and profited by selling (not a builder) every year for 7 of the past 9 years or so. I recall reading it in the paper about a week ago but don't remember which paper. In essence the details were that CRA came back and said he was "in the business" of buying and selling real estate despite moving in and out of principal residences and I believe he actually lost the case in Federal court.
This is clearly different from your "wash, rinse, repeat every 3-5 years".

Also, as I said...in these examples we usually quote the costs of a move at 5-7 or 8%. However, given that we really have to consider this as 2 moves (when you move back) and also the rent which may be a wash....15% is a lot. If we go down the 30% as I said, and one has to ask from where are you counting as Eug correctly points out...30% from 2008 is not the same as 30% from 2012 peak....it is tough to know the peak. The best one can do is read the trends.

On that note....I think RRR has correctly read the trend. The question remains...how much does it go down, over what period, and will RRR and others be so adept at choosing the bottom....it is tough to do and I believe with due respect to RRR that skill is only 50% or less and luck ends up being more than 50%. I say this not to insult RRR so please do not take it that way. I say it because as we have discussed in the past...there are so many outside factors that even the best rationale arguments / analysis cannot and do not account for, that the outside factors can play havoc with the best made plans.

For investment properties or for a move that was going to occur anyway...I agree that I too would be patting Mr. and Mrs. RRR on the back for probably getting it "right".

 

[daveto]

This data belies the guava data:

Toronto Median 2012 $410,000
Toronto Median 2011 $400,000

Averages are similarly up fractionally as well.

Three things.

1 . You've referenced Guava data which is all GTA, whereas klb86 was referencing City of Toronto (416) figures.
2. klb86 was referencing average figures, not median's.
3. Also, Guava's figures are not updated after TREB revises data. Typically, TREB's original published figures are revised slightly due to deals falling through/etc.

 

[Riverdale Rink Rat]

CN, cdr, interested:

Obviously, we, too, believe it was coincidence, although we had been planning on downsizing (missed on a couple of bids). And you do need to take a many years' long view in real estate. But, OTOH in the current upcycle, the capital gains tax relief covers many investment sins!

We sold first week of May, after Flaherty's latest tightening really put the writing on the wall.

A couple of things, though - y'all are projecting a little on the 'nomadic lifestyle' meme. Mrs.RRR likes to reno/redecorate and after 5-10 years in a house she's looking for the new project, so we're perfectly comfortable with moving on. I get that not all folks would be. Second, as I said, RE is a very long cycle. You don't have to catch the exact bottom to win on the trade, just let the trend unfold. Down today probably means down for several years. Third, the difference between 07 and today is several percentage points of mortgage rates. I do not believe w/ the Cdn 10year at 1.6% we have anywhere lower to go on mortgages, which was what sparked the last revival.

Cheers.

 

[UserNameToronto]

I have always had great difficulty understanding why the taxpayer through CMHC was guaranteeing mortgages on a multimillion dollar property. Why just because someone can afford to carry a mortgage of say $2 million dollars should that person be living in a $2.2 million house and carrying a 90% mortgage. Even if they are carrying a 70 or 80% mortgage that is CMHC insured, why is the taxpayer taking on that. The idea I always thought was to help buyers get into housing, not for people to live like millionaires if they can't afford the house.

Quite a leap of logic to suggest someone in a $2.2 million house with a 90% mortgage "can't afford their house", don't you think?

I do appreciate the banks were just downloading their risk but again my question is why were they allowed to download the risk?

Well, the delinquency rate in Canada is 0.34% at Sep/12 and is on an improving trend. Keep in mind this is the arrears rate, not the default rate, and even in a default there is recourse to the asset (just like in the US) and the future earnings of the counterparty (unlike in the US). CMHC's Q3 report: http://www.cmhc.ca/en/corp/about/core/upload/CMHC_2012_Q3_QFR_EN.pdf

At Sep/12, 92% of mortgages had an LTV of below 90%. 95% of mortgages were below $500,000 (handy charts: http://blog.canadianmortgageadvisor.ca/2012/11/cmhc-reported-steady-delinquency-rate.html ). So even if there are some $2 million 90% LTV mortgages like in your example, they're rare.

Effectively, CMHC is a way to help the Banks out with liquidity by freeing up their balance sheets. It's not like the Banks are unloading huge, toxic mortgages on the government.

Regarding 416 being down and 905 being up...another explanation besides the LTT is that Toronto is just so expensive that people who want a house move out to 905.

I'm not sure it's fair to compare 416 and 905 detached home sales, because there are so many semis in the 416. Many neighbourhoods are essentially semi or rowhouse only. I can't believe many buyers are cross-shopping Leslieville with Oakville. Suburban life is a different lifestyle, and you have to consider things like the cost of having 2 cars in the 905; higher average property tax bills in the 905; and the cost of running bigger homes.

 

[marsh]

From today's star:
http://www.thestar.com/business/art...the-biggest-hit-as-home-sales-drop-in-the-gta

 

[CN Tower]

Three things.

1 . You've referenced Guava data which is all GTA, whereas klb86 was referencing City of Toronto (416) figures.
2. klb86 was referencing average figures, not median's.
3. Also, Guava's figures are not updated after TREB revises data. Typically, TREB's original published figures are revised slightly due to deals falling through/etc.

Thanks for clarifying Dave. In any case a year over drop in average City of Toronto prices marks a solid turning point not seen since 2008. If this trend holds it will certainly have spillover effects across the industry.

The TREB and its spin masters can make all the excuses they want for why prices are falling but the harsh reality is that they are falling.

 

[interested]

Quite a leap of logic to suggest someone in a $2.2 million house with a 90% mortgage "can't afford their house", don't you think?



Well, the delinquency rate in Canada is 0.34% at Sep/12 and is on an improving trend. Keep in mind this is the arrears rate, not the default rate, and even in a default there is recourse to the asset (just like in the US) and the future earnings of the counterparty (unlike in the US). CMHC's Q3 report: http://www.cmhc.ca/en/corp/about/core/upload/CMHC_2012_Q3_QFR_EN.pdf

At Sep/12, 92% of mortgages had an LTV of below 90%. 95% of mortgages were below $500,000 (handy charts: http://blog.canadianmortgageadvisor.ca/2012/11/cmhc-reported-steady-delinquency-rate.html ). So even if there are some $2 million 90% LTV mortgages like in your example, they're rare.

Effectively, CMHC is a way to help the Banks out with liquidity by freeing up their balance sheets. It's not like the Banks are unloading huge, toxic mortgages on the government.



I'm not sure it's fair to compare 416 and 905 detached home sales, because there are so many semis in the 416. Many neighbourhoods are essentially semi or rowhouse only. I can't believe many buyers are cross-shopping Leslieville with Oakville. Suburban life is a different lifestyle, and you have to consider things like the cost of having 2 cars in the 905; higher average property tax bills in the 905; and the cost of running bigger homes.

I am not saying that everyone with a $2 million mortgage can't afford it. I am just saying the banks are downloading their risk onto CMHC and then the taxpayer. I own shares of banks and this is good for me as a shareholder of the bank though not as a taxpayer.
If one looks at the US crash, there were many fraudulent mortgages in the hurry of the banks to put mortgages on their books to have them packaged (monetarized) to investors. Along with that, out went a lot of the diligence to ensure the mortgages were proper, that the individuals were not Ninja's (no income, no job, no assets) and being given loans anyhow. In Canada the quality was much higher because the banks bore the responsibility. That is not the case with downloading and I have concerns that if there is a meltdown we will see who is swimming without any clothes.

If you look at the figures, one realizes that the logic suggested of a low default and low deliquency rate is correct as you point out. However, if there is a major correction as has occurred in the other parts of the world, the amount that CMHC has to actually cover is in fact very small. That would leave the taxpayer on the hook. So this logic works so long as everything stays afloat.

In response to: Effectively, CMHC is a way to help the Banks out with liquidity by freeing up their balance sheets. It's not like the Banks are unloading huge, toxic mortgages on the government.
This may be the case. The reality is I have no idea what loans banks are offloading on to the government. I am just concerned that knowing you are on the line for the loan means you are going to be a lot more careful than if you are not as in the US meltdown. I am not talking about the fraudulent ones, just that one tends to be more careful if one is not off the hook in the event of default.

Regarding moves to the 905 from 416: I agree with your point. I was writing this however in response to a previous post as an alternate theory or cause besides the Toronto LTT to explain the larger decline in 416 in prices than the comparable figures in 905. I think we are on the same wave length. To get a detached in the 416 is out of the reach of many who would want it. They may not cross shop Leslieville for Oakville, but they may have to accept a semi vs. a SFH. Each individual must decide their own "tradeoff".

 

[daveto]

Quite a leap of logic to suggest someone in a $2.2 million house with a 90% mortgage "can't afford their house", don't you think?

Not really. Why would someone choose to pay a $40k CMHC premium if they had the extra downpayment available? Possible, but unlikely.

Well, the delinquency rate in Canada is 0.34% at Sep/12 and is on an improving trend.

Yes, a low arrears rate is always good, but lets remember that the arrears rate in the US was also low as well prior to 2006. And it quite common to have a real estate correction without a high arrears rate. Canada only hit a 0.6% arrears rate during the early 90's correction.
http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf

At Sep/12, 92% of mortgages had an LTV of below 90%

This means that 8% of CMHC mortgages are underwater if they chose to sell (after sales costs). Consider that only 4% of the properties in the country are sold each year. Housing prices derive from this marginal sales activity, not from the average of all the properties in a market.

95% of mortgages were below $500,000

Agreed that very few CMHC mortgages are $2m+, although so too are very few houses at $2m+. Also, the incidence of $500k mortgages would be significantly higher in Toronto than Canada-wide.

Effectively, CMHC is a way to help the Banks out with liquidity by freeing up their balance sheets. It's not like the Banks are unloading huge, toxic mortgages on the government.

CMHC is insurance, and serves to transfer risk from the banks to the taxpayer in exchange for a premium.

Supporters of CMHC's growth point out that it has returned $16b of profit to the taxpayer over the past 10 years. This is indeed admirable. But let's remember that AIG produced $100b of profit in the 10 years prior to 2008, when it then lost $100b in a single year. Such is the nature of insurance. When the black swan catastrophe hits, you lose a lot of money.

UNT, I don't wish to seem nitpicky in my comments on your points, and I appreciate you providing links to support your data. But I think that assessing the true risks here is sort of like identifying the size of an iceberg - its important to look below the surface. In our case, if banks are significantly less willing to lend mortgage money without taxpayer- backed insurance, then it is important to consider, why?